Debenhams declines 11% on latest profit warning

Wednesday, June 20, 2018 - 07:15 AM

By James Davey

Shares in British department store chain Debenhams fell almost 11% after it cut its profit forecast for the third time in six months and said it might sell its Danish shops to bolster its finances and help cope with an industry crisis at home.

A string of British store groups have either gone out of business or announced plans to close shops this year, as they struggle with subdued consumer spending, rising business property taxes and growing online competition.

Department stores appear particularly vulnerable, with BHS going bust in 2016 and House of Fraser announcing plans earlier this month to shut around half of its shops.

Shares in Debenhams fell up to 19.4%, earlier in the day, taking year-on-year losses to over 60%, after the firm slashed its full-year profit forecast, blaming heavy discounting by rivals and weakness in key markets, including beauty products. It said it did not expect brutal trading conditions to abate any time soon.

Debenhams had already committed to a £20m (€23m) cost-savings programme, but said it needed to do more.

It plans to cut capital expenditure from about £140m in 2018 to about £75m-£90m in 2019 and has launched a strategic review of non-core assets. Chief financial officer Matt Smith said the six-store Magasin du Nord chain in Denmark, which made core earnings of £27m in 2017, had been identified for possible disposal, as had the firm’s small printing business Magenta Print.

Debenhams is now forecasting a pre-tax profit for the 2018 financial year of £35m to £40m compared with previous market expectations of £50.3m. It said trading in May and early June was below plan despite weak comparative numbers. Group like-for-like sales fell 1.7% in the 15 weeks to June 16.

“It is well-documented that these are exceptionally difficult times in UK retail, and our trading performance in this quarter reflects that. We don’t see these conditions changing in the near future and, because it is our priority to maintain a robust balance sheet, we are making very careful choices about how we deploy capital,” said chief executive Sergio Bucher.